"Consumer behavior is evolving faster than supply chains can adapt." -- Chris Caton, Vice President, Prologis,

Many investors may not realize that there is a direct link between soaring e-commerce growth and swelling industrial space demand for REITs like: logistics giant Prologis, (NYSE:PLD), FedEx landlord Monmouth Equity Realty Investment Corp. (NYSE:MNR), and SoCal focused Rexford Industrial Realty (NYSE:REXR).


Source: Prologis REITWeek June 4, 2014 Presentation

Prologis report highlights
A July 2014 Prologis report shed new light on how the logistics for e-commerce companies differs from traditional brick and mortar retailers. Here are some takeaways:

  • E-commerce is a sizable and growing share of demand, currently representing 10% of all new tenants around the world, up from less than 5% just three years ago.
  • For every billion in sales, traditional bricks and mortar retailers require 2.5 million square feet of retail space, and ~300,000 square feet of logistics space.
  • In contrast, E-commerce retailers require 1 million square feet of fulfillment space, or ~3x the space of traditional bricks and mortar.
  • Access for employees in the U.S. and Europe requires additional land for parking; while in Asia, proximity to mass transit is essential.
  • Larger customers often require higher clear ceiling heights for mezzanine floor space and operations.

Have these industrial REIT stocks been on fire recently?
It does not appear that these three industrial REITs are in any way overheated when compared to the Vanguard REIT Index ETF, or VNQ. The VNQ is a good approximation for overall REIT sector performance.

However, when it comes to dividend yield these three REITs are outperforming the VNQ average.

The Prologis business model
Headquartered in San Francisco, Prologis operates ~574 million square feet of modern distribution facilities in 21 countries. That equates to having over 13,000 acres of single-story buildings under roof!

Prologis has 4,700 distribution/warehouse customers including: manufacturers, retailers, transportation companies, and third-party logistics providers. These facilities are clustered around major ports, railways, and regional transportation hubs.

Prologis is poised for growth
A land bank to develop 179 million buildable square feet, which represents $10.7 billion of estimated build out.

  • Ability to increase AUM, or assets under management by $10 billion with minimal incremental overhead.
  • Forecast 20% to 25% market rent growth from 2014 to 2017.
  • Expects 4.7% same store NOI, driving annual Core FFO growth of 9.5%.

Clearly, Prologis is well positioned to capture its share of the global e-commerce bonanza.

The Monmouth business model
Last year marked the 46th year of Monmouth, or MREIC, as a publicly traded REIT. Founded in 1968, this industrial REIT has historically taken a very slow and steady approach to growth. After all of this time Monmouth's portfolio consists of a total of 80 industrial facilities containing approximately 10.5 million square feet of space.

In the early 1990's Monmouth began a relationship with Federal Express, now known as FedEx. In recent years, MREIC and FedEx have continued to expand their relationship, jointly taking advantage of the growth in e-commerce.

This is reflected in the current concentration of ~50% of the entire Monmouth portfolio being leased to either: FedEx, FedEx Ground, or FedEx Supply Chain. This concentration is either the great news, or the bad news, depending upon your point of view.

The balance of the Monmouth portfolio is leased primarily to investment grade companies such as:

Investors should be aware that although the Monmouth dividend yield has always been competitive during the past few years -- the dividend has held steady at $0.60 per share, despite FFO having grown from ~$9M in 2009 to ~$27.4 million in 2013.

The Rexford Industrial business model
Rexford Industrial has a unique, and potentially exciting business model when you factor in the added boost from e-commerce growth over time. The Rexford portfolio currently consists of 86 properties containing ~9.2 million square feet, along with an additional 1.2 million SF of industrial property under management.

These properties are located in the Southern California, or SoCal, close to two of the busiest ports in the U.S. -- Los Angeles and Long Beach. This industrial mecca is the largest in the U.S. containing ~2 billion square feet. The lack of vacant land, combined with legendary SoCal traffic snarls make infill locations prime real estate with a potential redevelopment upside.

Investors should keep in mind that the concentrated Rexford Industrial portfolio has exposure to seismic risks, similar to any other real estate located in Southern California. Investors are relying on a very experienced management team that is familiar with both the risk factors and abundant opportunities that are unique to this region.

Rexford's recent acquisition activities underscore management's ability to continue to acquire SoCal industrial properties that are accretive to earnings.

Investor takeaway
Dividend focused investors may be attracted by Monmouth's current ~5.7% yield. More conservative investors might be happy with the lower Prologis yield given its investment grade, scale, and global network. Rexford Industrial allows REIT investors a concentrated pure-play focus on the supply constrained SoCal industrial market.

As always, investors should do their own research and seek professional advice prior to making any investment decisions.

Bill Stoller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.